The draft 2008 budget was presented in the Parliamentary Session on 16 August 2007. The Draft 2008 Budget represents a further step forward in the systematic implementation of the vision and mission of the United Indonesia Cabinet set out in the Medium-Term National Development Plan (RPJMN) for 2004-2009.
The Financial Notes to the 2008 Draft Budget are more detailed, comprehensive and transparent. The economic conditions and projections underlying the budget are fully explained, as are the various policies envisaged by the Government that will affect the details of revenues, expenditures, and financing. This comes in response to demands from stakeholders, among others the Indonesian Parliament, economists, rating agencies, international institutions and the public, all requiring more complete and accurate information, and the Government desire for improved accountability and transparency in fiscal management.
The key reforms presented in the Financial Notes and the Draft 2008 Budget include the following: (i) full explanation of the economic conditions and projections underlying the formulation of the Draft Budget, (ii) detailed explanation of the effect on the budget and financing of the various policies to be implemented by the government; and (iii) disclosure of uncertainties and fiscal risks, both to the ongoing and future budget, most importantly with regard to deviations from assumptions and macroeconomic indicators, implementation of the infrastructure guarantee programme, the Public Service Obligation programme, sound condition of SOEs, natural disasters and the planned pension and social security policy.
These reforms are expected to provide a more complete and proportional picture for the general public and decision makers in their study and analysis of the Budget and tracking its implementation. The Government is confident that the provision of more transparent and accurate information that is understandable to all members of the public and decision makers will minimise uncertainties and strengthen the overall efficiency of the economy.
Primary feature of the Draft 2008 budget: reallocation to more productive expenditures
In the Draft 2008 Budget, the Government is striving for consistent improvement in fiscal effectiveness and efficiency. In so doing, capital expenditures are up dramatically from Rp 68.3 trillion (Revised 2007 Budget) to Rp 101.5 trillion (Draft 2008 Budget), an increase of 48.6%. At the same time, procurement is being reduced to Rp 52.4 trillion from the Revised 2007 Budget procurement level of Rp 62.5 trillion.
MACRO ASSUMPTIONS 2006-2008
| Description | 2006 Real | 2007 | 2008 Draft Budget | |
| State Budget | Revised State Budget | |||
| GDP Growth: | | | | |
| Growth (%) | 5.48 | 6.3 | 6.3 | 6.8 |
| Nominal Expansion (Rp trilloins) | 3,338.2 | 3,531.1 | 3,804.2 | 4,306.6 |
| GDP per Capita (in US$) | 1,643 | 1,704 | 1,858 | 2,077 |
| Inflation (%) | 6.6 | 6.5 | 6.5 | 6.0 |
| Exchange Rate | 9,164 | 9,300 | 9,100 | 9,100 |
| Average SBI Rate (%) | 11.74 | 12.0 | 8.0 | 7.5 |
| Indonesian Crude Price (US$/barrel) | 63.8 | 64 | 60 | 60 |
| Lifting (MBCD) | 0.959 | 1.0 | 0.95 | 1.034 |
| Unemployment | 10.31 1) | | | 8 - 9 |
| Poverty | 17.8 2) | | | 15 – 16.8 |
Source: MoF, Central Statistics Agency, Government Work Plan 2008
1) August 2006
2) March 2006
Significantly increased spending on infrastructure
The government is focusing on construction of infrastructure in support of economic growth and creation of employment, given that the primary foundation for promoting economic growth will only be established with increased stock and quality of infrastructure.The increased allocations for infrastructure construction are reflected in the substantially expanded budgets for the two ministries in charge of infrastructure. The budget allocation for the Ministry of Public Works is up 41.1% to Rp 35.6 trillion and the Ministry of Communications will receive an additional 64.1% over the estimated outcome of the Revised 2007 Budget, or a total of Rp 16.2 trillion. Similarly, the Ministry of Energy and Mineral Resources will receive a Rp 5.6 trillion budget allocation.
Greater priority for poverty alleviation and security for impoverished families
The effort to lift Indonesian families out of poverty has been redoubled with the scope the National Community Empowerment Programme (PNPM) launched last year broadened from 2,831 to 3,800 subdistricts. This represents a drive to consolidate poverty reduction programmes across a range of Ministries, most importantly in the three key ministries of Home Affairs, Public Works and the State Ministry for Development of Impoverished Regions. Allocated funds are being raised from Rp 3.9 trillion (2007) to Rp 7.0 trillion.
The Government will also retain the fuel and electricity subsidies to a substantial degree. In the Draft 2008 Budget, the fuel subsidy is maintained at Rp 46.7 trillion and the subsidy for household bottled LPG at Rp 2.4 trillion. Most of the fuel subsidy will be used to subsidise prices for kerosene, a fuel consumed widely by the poor. The government has also allocated a Rp 27.8 trillion subsidy for electricity.
Human Development in
The increased allocation for education sector is aimed at meeting targets for poverty alleviation and reduction in disparities through continued provision of limited free schooling and
Allocations for health care have similarly been raised by a significant 4.3% over the Draft Revised 2007 Budget, from Rp 16.1 trillion to Rp 16.8 trillion. This spending on health involves the continuation of the health insurance programme for poor families, as mandated in the National Social Security Law and measures to improve maternal and child health to promote healthier growth and intelligence in the future generation of Indonesians.
Commitment to improve governance through bureaucratic reforms and more robust budgets for law enforcement
The Draft 2008 Budget allocations also attest to the Government’s desire for improved governance in support of law enforcement, eradication of corruption and bureaucratic reforms. This is reflected, among others, in the Government proposal for a 20% pay rise for civil servants, payment of a 13th month salary and a hike in the meal allowance. Budget allocations are also significantly raised for almost all institutions involved in strengthening governance and law enforcement (Supreme Audit Agency, Supreme Court, Ministry of Law and Human Rights and the Attorney-General’s Office).
Defence and security budget moving towards ideal level
Expenditure allocations in the Draft 2008 Budget also stress the creation of peaceful conditions in
Higher expenditures for the regions
Budget increases have also been made for regional government expenditures. Transfers to Regions will rise from Rp 252.5 trillion to Rp 271.8 trillion, reflecting the desire to bring about fully-fledged decentralisation and regional autonomy. Significant increases have been made in allocations for the
Budget financing to rely more on domestic sources, most importantly taxes
The financing envisaged in the Draft Budget will be derived from increased domestic revenues collected through taxes and non-tax receipts. The tax ratio will be raised from 12.9% of GDP in the Draft Revised 2007 Budget to 13.6% of GDP Similarly, the non-oil and gas tax ratio will rise to 12.6% of GDP (Draft 2008 Budget) from 11.9% of GDP in the Revised 2007 Budget. With the tax ratio at this level, total revenues and grants are projected at Rp 761.4 trillion, up 11.2% over the projected outcome for the Revised 2007 Budget.
Net domestic financing in the Draft 2008 Budget is planned to reach Rp 91.7 trillion. The domestic financing will be raised from (i) issuance of Government Securities within the context of integrated fiscal and monetary policy; (ii) sale of bank restructuring assets at optimum value; (iii) use of government funds held on deposit at Bank Indonesia; and (iv) privatisation. Net budget financing from foreign borrowings is planned at a negative Rp 16.7 trillion. This amount consists of Rp 43.0 trillion in programme and project loans, subtracted by repayment of foreign debt principal at Rp 59.7 trillion.
| SUMMARY, 2007 REVISED BUDGET AND 2008 DRAFT BUDGET (in trillions of rupiahs) | |||
| | 2007 | 2008 | |
| Budget | Draft Revised budget | Draft Budget | |
| A. Revenues and Grants | 723.1 | 684.5 | 761.4 |
| I. Domestic Revenues | 720.4 | 681.8 | 759.3 |
| 1. Taxation Revenues | 509.5 | 489.9 | 583.7 |
| Tax Ratio (% of GDP) | 13.5 | 12.9 | 13.6 |
| 2. Non-Tax Revenues | 210.9 | 191.9 | 175.6 |
| II. Grants | 2.7 | 2.7 | 2.1 |
| B. State Expenditures | 763.6 | 746.4 | 836.4 |
| I. Central Government Expenditures | 504.8 | 493.9 | 564.6 |
| II. Transfers to Regions | 258.8 | 252.5 | 271.8 |
| C. Budget Surplus/Deficit (A – B) | (40.5) | (62.0) | (76.0) |
| % of GDP | (1.1) | (1.6) | (1.7) |
| C. Financing (I + II) | 40.5 | 62.0 | 75.0 |
| I. Domestic Financing | 55.1 | 74.6 | 91.7 |
| II. Foreign Financing (net) | (14.6) | (12.6) | (16.7) |
The fiscal function constitutes only part of the Economic Reform Programme for promoting economic growth and employment
In addition to the fiscal stimulus described above, other measures are being pursued to promote employment through increased investment and exports. These are centred more around micro economic reforms as set out in Presidential Instruction Number 6 of 2007.
Micro economic reforms are focused on four main categories: (i) improvement in the investment and business climate, (ii) accelerated construction of infrastructure throughout
Please find attached the unofficial translation of Press Release of draft budget 2008. The complete Financial Notes of Draft 2008 Budget in Indonesian language can be accessed at
http://www.depkeu.go.id/Ind/News/NewsControl.asp?cdcate=apbn.htm
Source: Ministry of Finance and Coordinating Ministry for Economic Affair
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